Deduction of VAT on the advance payment - the most important information

Service-Tax

Entrepreneurs selling goods or services use the option of settling accounts with the contractor for his order by making advance payments for future deliveries of goods or services. As a standard, when an advance payment is made, the seller issues an advance invoice, not later than by the 15th day of the month following the month of receiving the advance payment, confirming the receipt of a given advance payment in the form of an advance payment. The deduction of VAT on the advance payment and the issued advance invoice then arises in the settlement for the period in which it was received by the buyer, if it documents the actual payment of the advance.

When is the right to deduct VAT?

Pursuant to Art. 86 sec. 1 of the VAT Act, an active VAT payer is entitled to deduct VAT to the extent that goods and services are used by him to perform taxable activities. This deduction is made by reducing the amount of tax due, which reduces the amount of VAT payable.

When is it possible to deduct VAT on the advance payment?

The right to reduce the amount of tax due by the amount of input tax arises in the settlement for the period in which the tax obligation arose in relation to the goods and services purchased or imported by the taxpayer. Moreover, the right to deduct VAT from the buyer will arise no sooner than in the settlement for the period in which the taxpayer received an invoice or a customs document.

On the other hand, the amount of the deductible input tax is the sum of the tax amounts shown in the invoices received by the taxpayer confirming the advance payment, prepayment, if they contributed to the tax liability in VAT.

Unpaid advance invoices

It is not uncommon for entrepreneurs to issue an advance invoice prematurely. While the regulations allow for issuing an advance VAT invoice 30 days before making the payment, the earlier issue of an advance invoice is incorrect in the light of jurisprudence. In this situation, the tax authorities order the issuance of an invoice correcting the advance invoice to zero and the re-issuance of the advance invoice on time or the issuance of a proforma invoice.

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In addition, it is also necessary to distinguish between the situation where the taxpayer makes the advance payment after 30 days from the date of issuing the advance invoice, and at the same time after the date of submitting the VAT declaration for the period in which the seller issued the advance invoice and for which he had to calculate and pay the VAT due on it. ensuing. In this situation, if the seller would like to revise this down payment invoice, he would have to first reimburse the amount of the down payment received. On the other hand, upon re-receipt of the advance payment, the seller would issue an advance invoice documenting the actual receipt of the advance.

Distinguishing the two above-mentioned situations, taking into account whether or not a VAT declaration containing the amount of VAT from the issued advance invoice has been submitted, results in the prosecution of further activities depending on:

  • whether the advance payment was received after 30 days from the date of issuing the invoice, and at the same time before the date of submission of the VAT declaration for the month in which the advance invoice was issued,

  • whether the advance payment was received after the date of submission of the VAT declaration, i.e. in the month following the month of issuing the invoice,

  • whether the advance payment was received at all, and moreover, the due VAT was paid on the account of the advance invoice issued in the previous month.

Unfortunately, no uniform lines of judgments have been developed so far to help taxpayers make an effective decision on taking the correct steps to correct advance invoices that do not document the advance payment.

The right to deduct VAT from an invoice that does not document the advance payment

On the other hand, the deduction of VAT on the advance payment resulting from the received advance invoice which does not document the advance payment is suspended until (one month) the payment of this part of the receivable resulting from the advance invoice in question. The justification has already been given above; The legislator indicates that the right to deduct input VAT in relation to the purchased goods and services used for taxable activities arises in the settlement for the period in which the seller's tax obligation arose.

In this situation, the obligation to tax the advance payment received by the seller will not arise due to the lack of payment of this advance. The document itself is, in a way, a request for an advance payment for future deliveries of goods or services.

Therefore, the deduction of VAT on the paid advance payment from the advance invoice that does not document the actual payment of the advance payment will not arise in the month of receipt of such an invoice, but in the month of the actual payment of the advance.